Rising Interest Rates Could Bring The IPO Market Back To Earth After A

This is an excerpt from Deal Flow, Forbes’ daily newsletter about big buyouts, big mergers and the rest of Big Finance. Want a new edition in your inbox every afternoon? Subscribe here. After a record-breaking year for IPOs in 2021, the pipeline for 2022 is already filling up. Chime, Instacart, Reddit and Stripe are just a few of the hugely valuable startups that could finally take the leap from private to public. TPG is ready to get the party started next week, with a public debut on the docket that could value the private equity firm at nearly $10 billion. The big names will be there. But what about the rest of the IPO landscape? Will the good times continue to roll, and more records continue to fall? Or will escalating inflation and the potential for rising interest rates cause things to take a bearish turn? I spoke this week with Rachel Gerring, who works as the Americas IPO leader at EY, to take the temperature of the market as a new year gets underway. There were nearly 400 IPOs in the U. S. last year that combined to raise more than $142 billion in proceeds, according to data from the IPO watchers at Renaissance Capital. Both of those figures easily outpace any other year since the dot-com boom. Gerring and other experts have highlighted several factors that helped create such fertile ground for debutantes. Between a flood of government stimulus spending, soaring public valuations, a backlog of companies from 2020, low interest rates and the optimism of vaccine rollouts, the past 12 months were something close to a perfect storm. In the year ahead, though, the forecast looks a little different.“I’m starting to see some headwinds,” Gerring said. As one major example, Gerring pointed to the growing likelihood that the Federal Reserve will raise interest rates in the months to come. Part of the public market’s runaway success in 2021 was driven by investors seeking better returns than they might find in fixed-income markets. If higher rates make those fixed-income investments start to look a little more appealing, that could sap some of the public market’s juice. The pandemic continues, but at this point, it seems like the spigot of stimulus funding has been shut off for good. Plans to move back to the office have been again delayed by the omicron variant, perhaps sparking new pessimism. Many companies are struggling to retain top talent. Add it all up, and Gerring thinks it’s unlikely that public valuations will continue climbing to ever-loftier levels in the months to come. Last year, it seemed like the IPO window never closed. This year, timing may be of the essence.“Companies really need to continue planning, because they need to look for and be able to respond to the appropriate market openings when those moments occur that are right for them,” Gerring said. “So, to me, that just continues to put the pressure and focus around planning and planning in advance. Because I think in ’22, as we sit here today, there’s a lot of uncertainty.

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